The Future of Passports

2015-03-30Why St. Kitts & Nevis and Malta's economic citizenship programs are just the beginning for second passport options.

A basic tenet of the free market is that if a demand arises, someone will fill it.

In recent years, as many of the world’s governments have headed in a negative direction, they’ve become increasingly worried that a portion of their tax base will abandon them. This is a valid concern.

As any government begins to crumble economically, it invariably reacts by imposing increasing numbers of laws, regulations, tariffs, etc., in order to cover their losses. This only serves to drive people away—especially those who are productive and pay the most taxes.

As the situation worsens, the next step is to make it more difficult for such people to exit. First, new taxes are created, such as an exit-tax (a form of re-taxation on money already taxed), then restrictions on foreign travel.

We are presently at this point in the decline of many of the First World nations. New legislation has been introduced to deny travel, to confiscate passports, and to refuse passport renewals to some people.

These reasons are a clear case of the removal of a basic freedom, and most countries are therefore somewhat stealthy in introducing the restrictions—avoiding major changes quickly—to avoid dissent.

But the economic tipping point is coming ever closer for many such countries, and the new restrictions will not be substantial enough, soon enough, at this rate. Some larger excuse will be needed by governments.

I predict that soon, a new reason for restriction will come into play, and it will most likely happen like this: News items will begin to appear in the media that many foreign countries are being used by “terrorists” as stopping-off points, both for travel and banking. More and more countries will become “suspect.” Citizens departing for a holiday in any such countries will need to be questioned more heavily, and some will need to be investigated. Travel will be “discouraged but not prohibited.”

News reports will create increased fear in the population and help to justify increased travel limitation and passport limitations.

But as stated above, when one door closes in the market, another door opens.

Citizenship by Investment

Less than ten years ago, the Island group of St. Kitts/Nevis was in real trouble—the sugar industry had virtually ended, the government was broke, the job market had collapsed, and crime was rampant.

They then began to increase marketing of their “Citizenship by Investment” programme, which has been around since 1984 and allowed individuals to obtain a St. Kitts passport by either buying a home on St. Kitts for $400,000, or donating $250,000 to the government. The process was quick and did not require residency. (St. Kitts/Nevis already had a low level of direct taxation.)

The programme has been highly successful, transforming St. Kitts. High-end construction has increased dramatically, and the economy is flush from the income the new industry has generated.

On the coattails of the St. Kitts/Nevis success, other islands followed suit, and it’s possible to choose a similar programme in Dominica, Grenada, and Antigua.

I have in the past suggested that this is likely to expand considerably. The countries that choose to implement similar programmes will be mostly those countries that are small and/or have limited natural assets or limited economies.

Those offering such programmes will grow in number. The practice will become increasingly lucrative as more and more people come to understand the advantages of a second passport, or even the renunciation of an existing passport in favour of the new one, from a jurisdiction that is less overreaching in its demands on its citizens.

Already other countries have entered or plan to enter the field. Of particular interest is Malta, a member of the EU, which, although charging a premium for citizenship, also offers more. A passport holder has the right to live and work anywhere in the EU.

Not surprisingly, there has been some blowback from countries that do not wish to see this proliferation of freedom. St. Kitts/Nevis has succumbed to pressure to include the citizen’s country of birth on its passports, but has stopped short of providing lists of grantees. Additionally, Canada, a country that once had its own investment programme—for permanent residency—ended it in 2014, leaving 65,000 pending applications unprocessed—a market now potentially available to other countries.

Eurozone Citizenship

Croatia, Slovenia, Albania, Jamaica, and Montenegro are all considering issuing Citizenship by Investment passports. Croatia and Slovenia are EU members and would expand the number of EU countries offering economic citizenship. This is significant, as the EU cannot deny the right to its member countries to “sell” passports, even if they disapprove of the practice. Nor can they deny new passport holders the rights that other EU citizens enjoy, including the right to travel without a visa.

There can be no question that those countries that most wish to confine their own citizens at home if possible, will resent the new passport opportunities being offered in other countries, but limiting their issuance will prove difficult if not impossible.

That being the case, I predict that it’s entirely possible that, for those who can afford it, a second passport in one of these jurisdictions will become the new norm, and the numbers of countries offering such documents will grow.

I also believe that the next stage to this trend might be that a new form of passport will appear. At one time, passports were merely a letter of request for safe passage, not proof of citizenship. There’s no reason that this condition cannot return.

If so, we may well see passports being offered that are travel documents only, or citizenship without the right to reside and/or vote. If this comes to pass, there’s every reason that these documents, too, will need to be honoured. If so, they’re likely to carry a much lower price tag, as the offering country need not worry about dramatically increasing numbers of new passport holders either taking up domicile or upsetting the voting balance.

This would indeed be a significant development, as it would change the present structure of “ownership of citizens.” It would become far more difficult for any country to demand that an individual continue his citizenship in his country of birth, and once he is free to choose his citizenship amongst a variety of jurisdictions, he may well choose the one that offers him the greatest advantages.

To those who are productive by nature, this would mean selecting the jurisdiction that’s the most tax friendly and offers the greatest level of legal and economic freedom.

Editor’s Note: In addition to St. Kitts & Nevis and Malta, there are other attractive jurisdictions for obtaining a coveted second passport that are cause for optimism. Be sure to download our comprehensive guide on one of the easiest countries to get a second passport in.